Financial institutions face significant risk for outbound calls to customers under the Telephone Consumer Protection Act ("TCPA"). The TCPA is a strict liability statute and includes a minimum $500 in statutory damages for each call that violates the statute. Litigation under this statute, including class actions, has exploded in recent years. Millions of dollars have been paid out by financial institutions, and there is no end in sight.

The Basic Elements of a TCPA Claim

The TCPA makes it unlawful to place a call or send a text message to a cellular telephone without consent using any automatic telephone dialing system ("ATDS") or an artificial or prerecorded voice. For calls to landlines, the TCPA prohibits the initiation of a call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party unless the call is initiated for emergency purposes.

The TCPA provides for $500 in statutory damages for each violation of the TCPA. If a defendant is deemed to have violated the TCPA willfully or knowingly, then the plaintiff may be entitled to an award of treble damages of up to $1,500 per call. There is no cap on damages, and class action lawsuits can be brought seeking statutory damages for large groups of individuals. Good faith and absence of negligence are not valid defenses. Errant calls trigger liability even if the calling party acted reasonably.

TCPA class actions have been a major tool of the plaintiffs' bar. The wave of TCPA litigation has resulted in large, multimillion-dollar class action settlements, including settlements of $75 million, $34 million, and $32 million paid by financial institutions. One recent class action jury verdict awarded $61 million against DISH Network for telemarketing calls that allegedly violated the TCPA.

Key Definitions

Key terms used in the TCPA define the calls that are at risk:

  • Automatic Telephone Dialing System ("ATDS") : "Equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers."
  • Prior Express Consent (needed for non-telemarketing calls and texts): "Persons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary."
  • Prior Express Written Consent (needed for telemarketing calls and texts): "An agreement, in writing, bearing the signature of the person called that clearly authorizes the seller to deliver or cause to be delivered to the person called advertisements or telemarketing messages using an [ATDS]."
  • Revocation of Consent: A consumer can revoke consent by any "reasonable" means.

The Federal Communications Commission has given broad interpretation to the TCPA which has fueled claims. This, in turn, has prompted business groups to file several lawsuits challenging the FCC's broad interpretation. Oral arguments in the appeal were held on October 19, 2016 in the United States Court of Appeals for the District of Columbia Circuit, and a decision is expected at any time.

Common TCPA Litigation Issues Facing Financial Institutions

The issue of consent has generated numerous TCPA lawsuits. The burden rests on the defendant to prove that it had adequate consent to call the plaintiff using an ATDS. Whether the defendant has adequate business records to prove consent, whether consent can be obtained and conveyed via intermediaries, and whether someone other than the plaintiff can provide prior express consent are typical issues presented in TCPA cases.

Going hand-in-hand with consent is the issue of revocation of consent. Whether a consumer has effectively revoked his or her consent to be called is another fact-specific issue that dominates TCPA litigation. Courts must determine whether a consumer used reasonable means to revoke his or her consent, and whether those means clearly expressed the called party's desire not to receive further calls. Many lawsuits are brought based on the oral, uncorroborated testimony of a consumer claiming a revocation.

Defendants may face potential liability directly or under theories of vicarious liability, which often arise when a company outsources its marketing activity to a third party. Several courts have held that such companies, on whose behalf a call or text is made, may be held liable for a telemarketer's TCPA violations if the telemarketer acted as an agent of the company under federal common law agency principles. The determination of such liability typically rests upon a fact-specific inquiry that looks to the specific nature of the relationship between the company and the third party responsible for initiating the call. In a notable example, DISH Network was hit with $280 million in penalties in an action brought by federal and state regulators largely premised on calls made by vendors.

Protecting Your Financial Institution from Exposure

To minimize TCPA exposure, financial institutions need to ensure that both they and their vendors have proper compliance strategies in place. Banks must not only analyze their own technology but also must take necessary steps to ensure that their vendors are complying with the requirements of the TCPA.

In light of the potential damages available under the TCPA, insurance is often critical for those financial institutions facing TCPA litigation. As such, banks must carefully analyze their insurance policies to determine whether TCPA claims fall within the scope of coverage.

Arbitration clauses can protect your financial institution from some (albeit not all types of) costly TCPA litigation – but only if a court chooses to enforce it. Following the strong federal policy favoring arbitration, several courts have compelled individual arbitration in TCPA putative class actions. In those cases, the company-defendants included a broad arbitration clause in their service agreements, and courts found that the plaintiffs' TCPA claims fell within the scope of those agreements. The decisions serve as a useful reminder to financial institutions to consider including arbitration clauses in their consumer contracts and to use such clauses to their advantage when facing TCPA litigation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.